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Michael Singer

Midmarket Cloud ERP: It's Complicated

Written by Michael Singer
5/23/2011 3 comments
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Midmarket firms looking to migrate their existing enterprise resource planning (ERP) tools to a cloud-based delivery system -- be warned.

While there are a few appropriately sized ERP products for enterprises with annual revenues in the $10 million to $100 million range, and/or with 100 to 1,000 employees, there are a lot of costs and complexities to overcome.

In short, my feeling about cloud-based ERP for the midmarket: It’s complicated.

Standalone ERP systems have been around for more than 10 years. However, midmarket firms have limited IT resources and typically cannot afford to buy $2 million to $3 million in hardware and software from SAP AG (NYSE/Frankfurt: SAP) or Oracle Corp. (Nasdaq: ORCL). Instead, many mid-tier firms are investigating cloud-based alternatives for which they would pay $60 to $100 per month for licensed access to ERP systems that support their specific business processes, without the significant overhead costs.

"To react to this growing interest, vendors are creating hosted offerings with subscription models and administration services that offer some of the benefits of a SaaS ERP," Gartner analyst Christian Hesterman wrote in his firm's latest review of midmarket-focused ERP options.

SAP AG Business All-in-One and Microsoft Corp. (Nasdaq: MSFT) Dynamics are two notable cloud-based ERP offerings for midmarket firms. Similar cloud ERP products by NetSuite Inc. and Lawson Software Inc. also come to mind.

In a recent article titled "Cloud ERP -- New Dog, Same Fleas," Brett Beaubouef, an IT director at NTT America, highlights how cloud-based ERP software promises painless upgrades, rapid deployment, and easy customization, along with anytime availability.

But hosting your ERP in a cloud won't really work without integration of back-office applications, will it? While opting for a cloud-based ERP may cut some in-house development costs because the basic applications are already built, integrating cloud with existing enterprise apps has been an expensive proposition.

Even more pitfalls of cloud-based ERP loom. Vendors promoting these services may be leading midmarket companies to believe they can have a fully public cloud service. And that’s not the case.

Beaubouef notes in his blog that midmarket firms will sacrifice control and flexibility if they use only public cloud solutions. Instead, he suggests they use dedicated cloud connections, or even hybrid cloud systems. (See Internet Evolution contributor Tom Nolle's 6DEE seminar on hybrid clouds for more on this.)

Analysts with Gartner agree software-as-a-service (SaaS)-based ERP is growing but has not reached mainstream adoption. The research firm suggests most enterprises continue to use their ERP software in an on-premises model, but they are starting to complement these implementations by adding cloud-based software in adjacent areas like customer relationship management and collaboration.

For those wishing to learn more about the pain points mid-tier enterprises must face with cloud-based ERP, Internet Evolution is hosting a Q&A followed by a live chat on Tuesday, May 24, at 1:00 p.m. ET. Please join us here!

— Michael Singer Follow me on TwitterVisit my LinkedIn pageFriend me on Facebook, Senior Editor, Internet Evolution, Moderator of the Executive Clan and Midmarket Clan
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sbewley
IQ Crew
Tuesday June 7, 2011 11:39:34 AM
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Michael,

I think a big factor is cost. Cost to stay where they are versus cost to move!

As a subset then you need to factor planning, migration, conversion, bandwidth etc (and all the other heavy-lifting)> Then add to that the new concerns around security policy (including third-party testing). Change costs of process, training and labour costs.

Also risk is a big factor. Risk during the project and ongoing risk management. Especially if in a public sector or a listed company.

Michael Singer
IQ Crew
Tuesday May 31, 2011 1:30:49 PM
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Thanks for the comments srfernando

I'm hoping to find more midmarket companies that are interested in migrating their existing ERP systems into a cloud service.

What are their biggest concerns?:

Privacy?

Integration?

Bandwidth?

Regulation?

It seems too that cloud services are suffering from a lack of ROI confidence by the US Government. I wonder if that sentiment will rub off on midmarket firms.

srfernando
IQ Crew
Tuesday May 31, 2011 1:19:46 PM
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The ERP and Cloud Computing landscape has been changing dramatically over the last decade, but even more so over the last several years. In this scramble, ERP Cloud Computing applications have been getting tremendous following and demand for companies battling the formidable business challenges of the day which include revenue shortfalls and uncertainty, increasing competition, higher customer expectations and turnover, and changing market dynamics.

Cloud-computing lifts the perspective of software as a service (SaaS) to the business level where concerns about scale, performance and availability are seen through the lens of business processes and user requirements.

Because of tightening budgets midmarket businesses are looking for more affordable, high powered enterprise systems and ERP software solutions such as the web based ERP applications.

The key benefits delivered by Cloud Computing ERP applications are a faster time to value, minimal to zero capital outlays, minimal operational and maintenance costs, fewer required IT resources. But, cloud computing application should have a user friendly, easy to use standards oriented development code that will simplify the integration within disparate applications and legacy applications throughout the organization.

The ThinkerNet does not reflect the views of TechWeb. The ThinkerNet is an informal means of communication to members and visitors of the Internet Evolution site. Individual authors are chosen by Internet Evolution to blog. Neither Internet Evolution nor TechWeb assume responsibility for comments, claims, or opinions made by authors and ThinkerNet bloggers. They are no substitute for your own research and should not be relied upon for trading or any other purpose.
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